The dollar index rose +0.79% on Friday after President Trump nominated Keven Warsh as the next Fed Chair. Warsh is viewed as more hawkish and emphasized inflation risks during his time as a Fed Governor. US Dec producer prices and Jan MNI Chicago PMI data also supported the dollar’s gains. US Dec PPI final demand exceeded expectations at +0.5% m/m and +3.0% y/y, while the Jan MNI Chicago PMI rose to 54.0, the highest pace of expansion in over two years. President Trump’s tentative deal with Senate Democrats also bolstered the dollar, contributing to its rise. On the other hand, Fed comments were mixed, with some officials supporting easing while others believe further inaction is needed. The dollar declined to a nearly 4-year low earlier in the week after President Trump expressed comfort with its weakness. Foreign investors pulling capital from the US due to a growing budget deficit, fiscal profligacy, and widening political polarization also contributed to the dollar’s weakness. Market expectations for a -25 bp rate cut at the next policy meeting on March 17-18 are at 17%. The FOMC is anticipated to cut interest rates by about -50 bp in 2026, while the BOJ is expected to raise rates by +25 bp and the ECB is predicted to keep rates unchanged in 2026. EUR/USD fell -0.92% on Friday due to the stronger dollar and President Trump’s nomination of Warsh as the next Fed Chair. The Eurozone saw mostly stronger-than-expected economic data that supported the euro. The Eurozone Dec unemployment rate fell unexpectedly to match a record low of 6.2%, indicating a robust labor market. ECB Dec 1-year inflation expectations remained steady at 2.8%, surpassing expectations. The Dec 3-year inflation expectations unexpectedly rose to a 2-year high of 2.6%. Eurozone Q4 GDP exceeded expectations, rising by +0.3% q/q and +1.3% y/y. German Jan CPI (EU harmonized) was higher than anticipated, falling -0.1% m/m and rising +2.1% y/y. Swaps are pricing in a 2% chance of a +25 bp rate hike by the ECB at the next policy meeting on February 5. USD/JPY rose by +0.98% on Friday as the yen weakened against a stronger dollar. Japan Dec retail sales declined the most in 5.5 years, while Japan Jan Tokyo CPI rose at the smallest pace in 3.75 years, both bearish for the yen. Higher T-note yields also weighed on the yen. The yen is facing pressure as early polls indicate an increase in seats for Prime Minister Takaichi’s ruling party, raising fiscal concerns. Japan Dec industrial production declined -0.1% m/m, better than expected. Japan Dec retail sales fell by -2.0% m/m, the largest drop in 5.5 years. Japan Jan Tokyo CPI rose +1.5% y/y, weaker than expected, showing the smallest increase in 3.75 years. BOJ rate hike expectations at the next meeting on March 19 are at 0%. Gold and silver prices plummeted on Friday following President Trump’s nomination of Warsh as the new Fed Chair, which strengthened the dollar and led to massive liquidation of long positions in precious metals. The announcement of a tentative deal to avert a US government shutdown and hawkish US Dec producer prices added to the bearish sentiment for precious metals. Gold and silver reached all-time highs earlier in the week but retreated on Friday. Safe-haven demand for precious metals due to US tariffs and geopolitical risks, as well as concerns over the devaluation of the dollar, are supporting prices. Central bank demand for gold is strong, with China’s PBOC boosting its gold reserves for the 14th consecutive month and global central banks increasing gold purchases. Fund demand for precious metals remains robust, with long holdings in gold and silver ETFs at multi-year highs.
Read more at Yahoo Finance: Dollar Rallies and Precious Metals Plummet on Trump’s Pick for Fed Chair
